SizeMatters_pt2Live Oak Bank specializes in helping funeral homes and cemeteries invest in their futures, offering both capital and strategy to customers to help them grow. Each of the articles in this series deals with a growth opportunity that owners and managers sometimes miss.

Part 2 – Market Coverage

Why You Need More Than One Bucket If You’re Planning to Make Rain

There are people who compare advertising to making rain. It’s an apt analogy that gets even better if you really think it through. When it rains, it usually rains over a pretty broad area, and everything gets wet. If you want to do something more productive with the water (think drinking, bathing, etc.) then making rain just isn’t enough. You have to have something to catch it in (think buckets). That’s where you run into a classic scaling mismatch. If you’re paying by the minute to make rain all over town, unless you’ve got your bucket coverage scaled to match, there’s going to be a painful amount of waste.

Media markets work the same way. Each media vehicle has its own geographic reach, and in all but the smallest communities that reach can be pretty broad. Advertising rates reflect that full coverage and are based on the total population of the area. Ads for a business on the east side of town are paying to reach prospects on the north, west and south sides, whether you want them or not. Put simply, with all your buckets on the east side, all the rain you’re paying for in the rest of town is money down the drain.

This is a huge challenge if you’re trying to grow a local funeral business. Just 2-4% of the people seeing your ads are going to make or influence a funeral purchase in the next year or two. Of those precious few, if three-Fourths of them are outside your geographic area then a market-wide
advertising buy may not make sense. The cost to reach real prospects who could actually buy from you may be much too high. That fact alone takes a lot of funeral homes out of the advertising market.

Defining Your Targets

The critical issue here is your trade area – the area from which your business can expect to draw customers. You can measure what it is pretty simply, by plotting your last few years of cases on a map. Defining what it should be is often a much more complex job. There are lots of factors to
consider: drive time, distance from competitors, even psychological barriers like rivers and railroad tracks that shouldn’t be real obstacles, but still loom large in prospects’ minds.

If your trade area and your media coverage don’t match, then too many of your advertising dollars are going to waste. In a perfect world, the advertising outlets would be able to solve this problem For you. They would be sophisticated enough to target just the prospects who could
actually buy, and not make you pay to reach the rest. Website and social media advertising are already there, but local broadcast and print haven’t quite made it yet. Since they claim the majority of most funeral homes’ advertising budgets, it means we still have to deal with the
problem of wasted media reach.

Growing Your Trade Area

Most funeral homes address the waste problem by pulling their advertising dollars and investing in more targeted forms of marketing, like community outreach, guest marketing and pre-need campaigns. For those firms with better access to capital, two other solutions are available. Instead of shrinking your ad spending, both approaches rely on growing your trade area to take advantage of the media reach available.
The first solution is the simplest: grow your trade area by adding rooftops. Depending on the economics in your area you can either build them or buy them, but the net result is the same. You’ve expanded your network to compete across a wider geographic area, and capture more of the death care volume available in the market. Your advertising becomes much more efficient because more of the audience could actually become buying customers. You’re still making the same amount of rain, but you’ve got more buckets to catch it in.

Unless you’re expanding into an underserved market, the “adding rooftops” approach needs one extra ingredient to truly succeed: prospects in the new areas need a reason to choose you over the current provider. Something about your offer needs t be better than your competitor’s, in a way that your prospects can see before they buy. It can be price, facilities, service levels, or even your firm’s unique “personality” but without a better story to tell in your expanded advertising, your new rooftops won’t stand out they way they should.

Growing Your Reach

The second solution takes more work, but it can be proportionately more rewarding. If you create some desirable, highly visible differences in your offering or your brand, customers will be willing to come from farther away. Those differences separate you from the competition and
let you extend the reach of the trade area around your existing rooftops. Essentially your trade area grows to match your media coverage, without the same investment in new rooftops.

As an example of this approach, Newcomer Funeral Homes, an operator of price­ leading funeral homes and crematories in several states, has used this strategy effectively in a 15 U.S. markets. The company aggressively markets a combination of affordability and traditional values, filling an unoccupied niche between cut-rate cremation providers on one end and full-price funeral homes on the other. As a result, Newcomer locations tend to service a trade area that is much larger than that of their competitors. It can ultimately become a self-sustaining cycle. Because their trade area covers the entire market, they can afford to advertise more. Because of the extra advertising, they maintain their extended reach. With the extended reach they attract more customers per rooftop, which lowers their overhead cost. The lower costs in turn help them attract still more customers across a broader trade area.

Creating that marketable difference can be a capital-intensive project. Depending on what you chose as your focus, it can involve investments in facilities, technology or other assets, plus marketing or promotions to get the word out. Even with those investments, thought, it can be much
less expensive than green-field openings or acquisition of competing firms.

The Common Ingredient

Both of these strategies have one common ingredient: Leverage. As a business owner you’ve built a portfolio of assets that are crucial to the future of your business. At Live Oak Bank, it’s our job to provide the final ingredient – the financial leverage you need to make the most of those assets and grow your business.

 

About the Authors

Doug Gober is a Senior Loan Officer with Live Oak Bank. A CPA by training, Doug joined Live Oak after working with some of the leading companies in the funeral industry for more than 30 years, including Batesville, York Casket, Matthews International and Carriage Services.

Paul Seyler is President of Competitive Resources, Inc., a New Orleans-based firm providing research, strategy and execution to companies both inside and outside the funeral industry. 

 

To download a copy of this article, click here: Size Matters Part 2